Got that extra surplus in the bank account? Need to invest it right away? Easy - Google for the best mutual fund, find recommendations from 5 news/media website and pick the one that appears in the maximum number of lists, go to your online bank/broker account and invest it right away!
Does this sound familiar to what you'd do? Now let's dissect the entire process and try figuring out the rights and the wrongs in this process -
1. Google for the best mutual fund - There are at least 10 different kinds of funds! Yes - Equity mutual fund is not the only kind of fund that exists. In fact, it's not even the most popular category of mutual funds. There are funds that offer very low-risk to very high-risk options which hold assets in a variety of equity and debt (FDs, etc) instruments. Asking for the best mutual fund is like going to the market and asking the pharmacist for the best medicine. You'll have to specify what ailment you are looking to cure! More on this in another article here.
2. Find recommendation from 5 news/media portals - Nothing wrong with that. After all, many good media portals have a good research team to back their recommendations as well. Though many media portal's suggestions are based on the best performing funds in the past year. That's a good point to start, but definitely not the best track to continue. The consistency of returns, risk of investments and many other factors matter equally. Some portals actually promote certain funds over other (Think how they make their money - Advertisements!). An unbiased fee-only SEBI registered advisor could definitely help you out here. Make sure to choose your adviser wisely.
3. Go to your online bank/broker account and invest it right away - Oh boy, this is the big one. And we cannot stop harping about it enough. Your bank/broker/neighbour gets up to 1% commission every year you stay invested with them. Investing online through bank/broker such as ICICI Direct is not the same as investing directly. Investing through online startups such as Funds India is also not the same as investing directly. You have to go to each individual Mutual Fund company and invest directly with them or use a portal such as Expowealth which offers access to DIRECT schemes only, for a small convenience charge.
Just to put things in number. Let's say you were to invest in HDFC Mid-cap Opportunities Fund for 20 years for a small amount of ₹10,000 every month. Assuming the fund to return about 15%, which is a fair assumption for the category and historical performance, here's what the returns look like:
|Via Bank/Broker||Directly||Loss due to commissions|
|HDFC Mid-cap opportunities fund
Expected returns: 15% p.a.
In plain English, you'd lose about ₹16.5 lacs all because you invested through your distributor and not directly.
Expowealth is an investment portal that helps users research, invest and manage investments in DIRECT schemes of mutual funds. Get started here